Wednesday, 3 June 2009

Positive housing data, inflation risk

There was another piece of good economic news in the US on Tuesday. Bloomberg reports:

The number of Americans signing contracts to buy previously owned homes climbed 6.7 percent in April, more than forecast and the fourth increase in five months, as lower prices attracted buyers.

The gain in the index of signed purchase agreements, or pending home resales, was the biggest in more than seven years and followed a 3.2 percent increase in March, the National Association of Realtors said today in Washington. The April reading was up 3.2 percent from the same month a year earlier.

The UK housing market also appears to be getting better. Telegraph reports:

Bank of England figures showed mortgage approvals rose for the fourth month out of the last five to a one-year high of 43,201. That was higher than the 41,000 expected and an increase of 3,163 compared with March...

Separately the latest construction Purchasing Managers' Index (PMI) showed that housing output and orders showed a sharp improvement in May...

Housing activity jumped to 48.5 on the PMI from 33.7 in April... It was the highest level since November 2007...

Output and orders in construction overall rose to 45.9 in May, the highest since last April and up from 38.1 the month before.

If housing markets are improving, there is hope for some sort of economic recovery in the not-too-distant future.

And that in turn means that it may be time to start looking at inflation risk again. Indeed, Paul Kasriel thinks that inflation is the bigger risk over the next five years, not deflation.

... [E]ven with relatively large output gaps in the near term, other factors point to, at least, continued inflation in the neighborhood of what has been experienced in recent years rather than persistently very low inflation or outright deflation. With the reversal of...secular disinflationary factors in combination with cyclical factors such as relatively high money growth and the potential for a depreciating U.S. dollar, it seems to me that over the next five years inflation rather than deflation is the greater risk.

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